What will likely happen when Eskom gets greenlight to hike tariffs by 15%

Should NERSA give Eskom the greenlight, this is the likely scenario of how things may take shape.

Eskom is at the brink of a crisis that, if it is ignored, will cause irreparable damages to our economy.

On Friday, as reported by Eyewitness News, the National Energy Regulator of South Africa (NERSA) has been debating on Eskom’s submission of the 15% tariff increase on electricity for the next three years.

The power utility has seen this as the only way it can recuperate the loss in billions it has suffered in the hands of misaligned management structure.

However, what sort of impacts on the economy and society are we likely to see should NERSA conclude that the power utility has grounds to implement the 15% tariff hike?

Impacts of electricity hikes at municipal level

Without municipalities in our metros and districts, we would not have a formal distribution of electricity to our homes and local businesses.

Municipalities, using budget allocations and the sort, purchase bulk electricity from Eskom and redistribute it to communities on a prepaid or monthly pay-as-you-use basis.

It becomes extremely difficult, then, for municipalities to maintain a sustainable input-vs-output measure of distributing electricity if it becomes more expensive to purchase in bulk but limited to reselling it at a limited rate per kilowatt.

More than likely, municipalities are forced to increase rates for home and business use and that increase lends itself to have an impact on the price of our basic needs in local businesses.

Impact on inflation and the economy

South Africa is at the stage right now where infrastructural development is of critical significance if foreign investment is to be realised in the way President Cyril Ramaphosa sees it.

However, with the power utility looking to hike tariffs, this may have an adverse effect on our ability to attract confidence in our economy.

The reason being is that the increase in tariffs will force an increase in inflation, which has remained unscathed at 6.75% for the last two quarters.

The rise of inflation, especially in a country with a very fragile energy sector, will discourage activity in the economy as the price of basic goods will likely increase, as well as unemployment for that matter.

While it is clear that Eskom is likely to increase their tariffs, political parties like the Democratic Alliance (DA) have asked the power utility to be more considerate and only institute a 4.5% annual increase.

“Eskom needs to break up, the monopoly stranglehold needs to be taken away and our recommendation is to see a generation entity being privatised that will ensure that the monopoly is broken up.

“Transmission will remain state-owned but well-functioning metros will be able to enter into agreements with the electricity generator directly.” the DA’s Natasha Mazzone said.